The Washington Post

Warren Buffett reveals the one stock fund you need to invest in

Warren Buffett is chairman and chief executive of Berkshire Hathaway. (Carlo Allegri/ Reuters)

Warren Buffett's annual letter to shareholders is almost always a treat to read, even if you don't own any shares of Berkshire Hathaway. It's eminently readable, and he usually throws in some evergreen personal advice that anyone can use. This year is no exception, based on an exclusive excerpt just published by Fortune.

In the letter, Buffett tells the story of two investments made more than two decades ago: a 400-acre farm outside Omaha and a commercial building in Manhattan. The farm is now worth more than five times what he paid. And he says the Manhattan investment produces annual income equal to more than a third of the initial investment.

His secret? He focused on the fundamentals of what the investments would produce, not on their fluctuating value. The real estate property, for instance, was adjacent to New York University, which he notes "wasn't going anywhere."

"Games are won by players who focus on the playing field -- not by those whose eyes are glued to the scoreboard," writes Buffett. "If you can enjoy Saturdays and Sundays without looking at stock prices, give it a try on weekdays."

Buffett says that for "the nonprofessional" (that's the rest of us), there's no need to be picking winners in the stock market, or hiring someone else to do it either. And you should definitely ignore people on TV who try to predict broader market conditions.

A low-cost S&P 500 index fund, which captures a wide enough cross section of businesses, should be plenty. And he reveals that he's following his own advice in his will (emphasis added):

My money, I should add, is where my mouth is: What I advise here is essentially identical to certain instructions I've laid out in my will. One bequest provides that cash will be delivered to a trustee for my wife's benefit. (I have to use cash for individual bequests, because all of my Berkshire Hathaway shares will be fully distributed to certain philanthropic organizations over the 10 years following the closing of my estate.) My advice to the trustee could not be more simple: Put 10% of the cash in short-term government bonds and 90% in a very low-cost S&P 500 index fund. (I suggest Vanguard's.) I believe the trust's long-term results from this policy will be superior to those attained by most investors -- whether pension funds, institutions, or individuals -- who employ high-fee managers.

So there you have it. You don't need much more than a Vanguard S&P 500 index fund.

It sounds like Buffett is a good candidate for a running feature by MarketWatch's Paul B. Farrell called "Lazy Portfolios" in which investors pick a handful of low-cost index funds, and Farrell tracks their performance over the years. David Swensen, the manager of Yale University's endowment, for instance, recommends just six index funds. There's also one from a second-grader who got some hints from his father and invested in only three funds.

The lesson from Buffett and others is that ordinary investing doesn't need to be complicated. In fact, if it's not simple, you're doing it wrong.

Jia Lynn Yang is a business editor at The Washington Post.



Success! Check your inbox for details. You might also like:

Please enter a valid email address

See all newsletters

Show Comments
Most Read



Success! Check your inbox for details.

See all newsletters

Your Three. Videos curated for you.
Play Videos
What can babies teach students?
Unconventional warfare with a side of ale
A veteran finds healing on a dog sled
Play Videos
A fighter pilot helmet with 360 degrees of sky
Is fencing the answer to brain health?
Scenes from Brazil's Carajás Railway
Play Videos
How a hacker group came to Washington
The woman behind the Nats’ presidents ‘Star Wars’ makeover
How hackers can control your car from miles away
Play Videos
Philadelphia's real signature sandwich
Full disclosure: 3 bedrooms, 2 baths, 1 ghoul
Europe's migrant crisis, explained
Next Story
Zachary A. Goldfarb · February 24, 2014

To keep reading, please enter your email address.

You’ll also receive from The Washington Post:
  • A free 6-week digital subscription
  • Our daily newsletter in your inbox

Please enter a valid email address

I have read and agree to the Terms of Service and Privacy Policy.

Please indicate agreement.

Thank you.

Check your inbox. We’ve sent an email explaining how to set up an account and activate your free digital subscription.